1. World Trade
Report 2011
The WTO and preferential trade agreements:
From co-existence to coherence

2. What is the World The World Trade Report is an
Trade Report?
annual publication that aims to
deepen understanding about
trends in trade, trade policy
issues and the multilateral
trading system.
Using this report The 2011 World Trade Report
is split into two main parts.
The first is a brief summary
of the trade situation in 2010.
The second part focuses on
the special theme of preferential
trade agreements.
Find out more Website: www.wto.org
General enquiries:
enquiries@wto.org
Tel: +41 (0)22 739 51 11

3. Contents
Contents
Acknowledgements and Disclaimer 2
Foreword by the Wto Director-General 3
executive summary 5
I World trade in 2010 18
II The WTO and preferential trade agreements:
From co-existence to coherence 40
A Introduction 42
1. Perspectives and insights in the World Trade Report 2011 44
2. Structure of the report 45
B Historical background and current trends 46
1. The formation of PTAs: a historical perspective 48
2. The evolution of PTAs: stylized facts 54
3. Trade flows related to PTAs 63
4. How preferential is trade? 72
5. Conclusions 85
C Causes and effects of PtAs: Is it all about preferences? 92
1. Motives for PTAs 94
2. The standard economics of PTAs 100
3. Going beyond the standard analysis 109
4. Conclusions 114
Technical Appendix: Systemic effects of PTAs 118
D Anatomy of preferential trade agreements 122
1. Are lower tariffs still important for PTAs? 124
2. Patterns in the content of PTAs 128
3. Production networks and deep PTAs 145
4. African regional cooperation: lessons from deep integration? 151
5. Conclusions 153
Appendix tables 157
e the multilateral trading system and PtAs 164
1. Systemic effects of preferential tariff liberalization 166
2. Deep PTA provisions and the multilateral trading system 168
3. Regionalism and the WTO: historical perspective 182
4. The relationship between PTAs and the WTO 187
F Conclusions 196
statistical appendix 199
Bibliography 228
technical notes 239
Abbreviations and symbols 243
List of figures, tables, boxes and maps 245
Wto members 249
Previous World trade Reports 250
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4. WOrld Trade repOrT 2011
acknowledgements
The World Trade Report 2011 was prepared under the preparation. The authors are particularly grateful to
general direction of the Deputy Director-General several individuals in the Legal Affairs Division (Valerie
Alejandro Jara and supervised by Patrick Low, Director Hughes, Gabrielle Marceau and Edna Robles), the
of the Economic Research and Statistics Division. The Trade in Services Division (Rolf Adlung) and Trade
writing of this year’s report was coordinated by Nadia Policies Review Division (Rohini Acharya, Jo-Ann
Rocha and Robert Teh. The principal authors of the Crawford, and Christelle Renard). The following
Report were Marc Bacchetta, Cosimo Beverelli, John individuals from outside the WTO Secretariat also
Hancock, Alexander Keck, Gaurav Nayyar, Coleman made useful comments on earlier drafts: Dale
Nee, Roberta Piermartini, Nadia Rocha, Martin Roy, Andrews, Ann Capling, Manfred Elsig, Gary Hufbauer,
Michele Ruta, Robert Teh and Alan Yanovich. Other Lena Lindberg, Xuepeng Liu, Mark Manger, Jean-
written contributions were provided by Marc Auboin, Christophe Maur, Alessandro Nicita, Emanuel Ornelas,
Manfred Elsig, Trudi Hartzenberg and Roy Santana. Joost Pauwelyn, John Ravenhill, Robert Staiger, Kati
Special acknowledgment is owed to Richard Baldwin Suominen, Tania Voon, Peter Williams, and John
for his many suggestions and contributions to the Whalley.
report. Trade statistics information was provided by the
Statistics Group of the Economic Research and The production of the Report was managed by
Statistics Division, coordinated by Hubert Escaith, Paulette Planchette of the Economic Research and
Julia de Verteuil, Andreas Maurer and Jurgen Statistics Division in close cooperation with Anthony
Richtering. Aishah Colautti assisted in the preparation Martin, Heather Sapey-Pertin and Helen Swain of the
of the graphical input and Paulette Planchette, Information and External Relations Division. The
assisted by Véronique Bernard, prepared the translators in the Languages, Documentation and
bibliography. Research assistance was provided by Information Management Division worked hard to meet
Hans Baumgartner, Pavel Chakraborty, Claudia tight deadlines. This year the WTO Secretariat
Hofmann, Joelle Latina, Alen Mlabdic, Andreas Lendle, launched a Webpage discussion on the topic of the
and Gianluca Orefice. World Trade Report 2011. The Webpage, which
attracted many stimulating contributions, was
Other Divisions in the WTO Secretariat provided managed by Joelle Latina, in collaboration with
valuable comments on drafts at various stages of Anthony Martin.
disclaimer
The World Trade Report and any opinions reflected therein are the sole responsibility of the WTO
Secretariat. They do not purport to reflect the opinions or views of members of the WTO. The main authors
of the Report also wish to exonerate those who have commented upon it from responsibility for any
outstanding errors or omissions.
2

5. FoReWoRD
Foreword by the WTO director-General
This year's World Trade Report takes an in-depth fresh As tariff preferences have
look at preferential trade. The choice of this topic diminished in importance,
reflects two significant trends in international trade non-tariff measures have
relations, both of which carry far-reaching implications become relatively more
for the multilateral trading system. The first and most significant as determinants
readily evident of these is the continuing growth and of market access and the
increasing prominence of preferential trade conditions of competition.
agreements (PTAs). In the last two decades, the Non-tariff measures come
number of PTAs has increased more than four-fold, to in many shapes. They may
around 300 active agreements today. There is no be designed to influence
reason to assume that PTAs will cease to grow in competitive conditions in
number or that they will not form part of the long-term markets, just like tariffs, or
tapestry of international trade relations. Secondly, the they may focus on public
content of PTAs continues to evolve and deepen, policy concerns such as
reflecting important changes in the world economy. health, safety, and the
This too raises vital questions about the focus and environment. These public
reach of the WTO, and the value assigned by policy interventions also have trade consequences and
governments to globally-based trade relations. may be more or less discriminatory in their effects.
The perennial concern about the relationship between For the most part, it would seem that non-tariff
the multilateral trading system and PTAs has provoked measures of the public policy variety have remained
different reactions among commentators and analysts. focused on consumer welfare and not benefits to
Some would emphasize a clash of systems and producers. However, the fact that interventions
inherent inconsistencies between discriminatory and putatively designed to protect consumers may also
non-discriminatory approaches to trade relations. favour producers can lead to concerns over hidden
Others would point to the growing prominence of PTAs protection and unwarranted market segmentation. In a
as a reflection of the demise of multilateralism. Others world where the WTO is having difficulty advancing an
still would assert that regional and multilateral updated multilateral agenda, the risks of preference-
arrangements are in essence complementary and based discrimination and market disintegration built
need to be fashioned accordingly. None of these around regulatory divergence should not be disregarded.
perspectives can singly capture the complexity of
international trade relations in a globalizing world. An important additional element in the equation,
stemming from the emergence of supply chain
Our report seeks to navigate a way through these production as a prominent mode of twenty-first-
complexities in bringing new data and analyses to century integration, is that new regulatory matters are
understand these issues. It acknowledges the multiple increasingly on PTA agendas. These include issues
motivations for preferential approaches. At the same such as investment, competition policy, government
time, the report identifies important ways in which the procurement and harmonization or mutual recognition
focus of trade policy, particularly of the preferential of product and process standards. The report analyses
variety, is being reshaped to reflect the consequences the content of a large number of PTAs in terms of
of past policies as well as changes in production whether they augment WTO provisions in particular
structures internationally. policy areas and introduce entirely new issues. Both of
these tendencies are identified in many PTAs,
In earlier times PTAs were most likely to be motivated particularly those that have entered into force more
by the desire to avoid relatively high most-favoured recently. Here, then, is another reason why we need to
nation (MFN) tariffs. The theory on free trade areas remain attentive to policy fragmentation. To the extent
and customs unions mirrored this reality by placing the that the desire for deeper integration under PTAs, in
notions of trade creation and trade diversion centre-
both WTO and non-WTO areas of regulation, is driven
stage. At the same time, considerable attention has
by the logic of vertically integrated international
been paid to the discriminatory effects of rules of
production structures, one is less likely to encounter
origin on the trade of third parties. More recently, this
discriminatory intent lurking behind regulatory
context has lost some of its relevance because
cooperation in PTAs. But we should be mindful of the
underlying realities have changed. As the report
possibility that even in the absence of intent, market
documents, average tariffs have fallen markedly in
segmentation and discriminatory outcomes could be
recent years, making tariff preferences a more minor
an unavoidable consequence of these arrangements.
motivation for entering into PTAs. Furthermore, it
seems that where MFN tariffs remain high they are
The report pays explicit attention to the question of
also excluded from preferential reductions, additionally
what is needed in a multilateral context to ensure that
weakening this motivation.
3

6. WOrld Trade repOrT 2011
PTAs and the WTO do not simply run on parallel tracks, Thirdly, to the extent that PTAs are motivated by a
offering plentiful opportunities for inconsistency and desire for deeper integration rather than market
conflict. This focus explains the subtitle of the report segmentation, there could be a role for the WTO to
– “From co-existence to coherence”. What then, should promote greater coherence among non-competing but
the WTO be doing? It has often been said that if the divergent regulatory regimes that in practice cause
WTO made progress in multilateral negotiations, both geographical fragmentation or raise trade costs. This
on market access and rules, this would soften the agenda has been referred to as multilateralizing
likelihood of clashes and inconsistencies with PTAs. regionalism. In some cases the multilateralization
This is undoubtedly a valid point, but the experience of effect occurs de facto because regulatory reforms
the Doha Development Round during the last decade undertaken in a PTA context are applied in a non-
has raised questions about the ability and willingness discriminatory manner. This MFN dividend could be
of governments to advance the multilateral agenda. It built upon in other policy areas. The feasibility of this
has also raised the need to connect the multilateral approach would need to be researched further.
and bilateral “brains” of trade policy drivers and actors.
We need a better record if we are to attain greater Whatever view one takes of precisely how to promote
coherence between the WTO and PTAs through a global orientation in trade relations, there is no doubt
successful multilateral negotiations. that we need to build towards a more stable and
healthier trading environment, where alternative trade
A second possibility is to continue the quest for policy approaches are mutually supportive and balance
greater legal clarity and detail in the WTO rules about equitably the needs of all nations. It is to the discussion
what is permissible under PTAs. Progress here could of this agenda that this year's World Trade Report
blunt the likelihood of damaging discriminatory seeks to make a contribution. I hope members will
outcomes under PTAs, whether intentional or have a first opportunity to consider some of the issues
otherwise. Here again, however, years of effort in the in this report at the upcoming 8 th WTO Ministerial
Doha Round and before to address multilateral Conference in December 2011.
provisions on PTAs have yielded limited results. It is for
governments to determine whether they need greater
legal certainty in this domain. If they do, perhaps a
more circuitous route to the objective is precisely the
one that members have recently embarked upon. The
provisional establishment of the Transparency
Mechanism for Regional Trade Agreements may pave
the way for non-litigious deliberations that could build
confidence and understanding among members
regarding the motives, contents and policy approaches
underpinning regional initiatives, leading over time to a Pascal Lamy
shared vision and reinforced legal provisions. Director-General
4

7. exeCutIve summARy
executive summary
Section a: Introduction Section B: Historical background
and current trends
The report is divided into four main parts. The first
provides an historical analysis of preferential trade
agreements (PTAs) and a description of the current
the formation of trading blocs:
landscape. It documents the large increase in PTA a historical perspective
activity in recent years, breaking this down by region,
level of economic development, and type of integration Global trade relations have never been uniform or
agreement. It provides a precise estimate of how much monolithic and regional trading arrangements
trade in PTAs receives preferential treatment. have been around for centuries.
The second section discusses the causes and Regional trading arrangements have encompassed
consequences of PTAs, focusing on both economic empires and colonial spheres of influence, bilateral
and political factors. A distinction is made between commercial treaties and, more recently, multilateral
shallow and deep integration in order to suggest that agreements. They have often overlapped and
traditional theories do not fully explain the emerging interacted, creating a trade landscape defined less by
pattern of PTAs. The report examines in particular the clear-cut choices between regionalism and
role of international production networks in prompting multilateralism – or discrimination and non-
the creation of deep PTAs. discrimination – than by the complex interplay, even
competition, among multiple trade regimes.
The third section focuses on the policy content of
PTAs, with particular reference to the depth and scope Despite this complexity, in more recent times trade co-
of commitments compared with those contained in the operation has become broader and more inclusive.
WTO agreements. It supports the link between Defining landmarks in this trend have been the
production networks and PTAs with both statistical establishment of the GATT in 1947 and the WTO in
evidence and case studies. 1995. At the same time, trade relations have become
deeper and more far-reaching, incorporating areas
The final section identifies areas of synergies and such as services trade, foreign investment, intellectual
potential conflicts between PTAs and the multilateral property and regulatory regimes. These tendencies
trading system and examines ways in which the two are a clear reflection of the growing integration of the
“trade systems” can be made more coherent. world economy and the “internationalization” of
policies that were once considered domestic. In some
See page 42 cases, regional agreements have progressed further in
this direction than the over-arching multilateral
framework.
Progress has not been continuous, and there have
been major set-backs and reversals along the way. The
economic depression of the early 1870s, for instance,
effectively brought the expansion of Europe's bilateral
trade treaties to an end, just as the “Great Depression”
of the early 1930s helped fuel the spread of defensive
and increasingly hostile trade blocs in the inter-war
period. Conversely, the push for a more open and
inclusive trading order has been strongest during
periods of economic expansion and international
peace. A main justification for creating the GATT in the
post-war period was the widely held belief that hostile
trade blocs had contributed directly to the economic
chaos of the 1930s and the outbreak of the Second
World War.
the establishment of the post-war multilateral
trading system did not diminish the attraction of
bilateral or regional approaches to trade
arrangements and led instead to a period of
creative interaction and sometimes tension
between multilateralism and regionalism.
5

8. WOrld Trade repOrT 2011
The first wave of regionalism in the late 1950s and reciprocal trade opening and by an increase in the
1960s was driven by Western Europe's push for number of PTAs per country. All WTO members (with
continental integration, leading to the establishment of the exception of Mongolia) belong to at least one PTA.
the European Economic Community (EEC) in 1957
and the European Free Trade Agreement (EFTA) in PtA activity has transcended regional boundaries.
1960. Throughout this period, GATT tariff cutting and
membership enlargement moved in tandem, first with One half of the PTAs currently in force are not strictly
the Dillon Round in 1960-61 and then with the much “regional”. The advent of cross-regional PTAs has been
more ambitious Kennedy Round between 1964 and particularly pronounced in the last decade. The trend
1967. towards a broader geographical scope of PTAs is even
more pronounced for those PTAs that are currently
Subsequent waves of regionalism, from around the under negotiation or have recently been signed (but
mid-1980s onwards, reflected an increasing embrace are not yet in force). Practically all of these are of the
of such arrangements in the Americas, Asia and Africa, cross-regional type.
as well as in Europe. The continuing proliferation of
regional agreements over the last 25 years involves a PtAs have seen opposing trends towards further
wide network of participants – including bilateral, rationalization on the one hand and a sprawling
plurilateral and cross-regional initiatives – and web of new bilateral and overlapping deals on the
encompasses countries at different levels of economic other.
development – including “developed-developed”,
“developing-developing”, and “developed-developing” Numerous bilateral agreements have been
alliances. These newest agreements also often consolidated into plurilateral agreements either via
address WTO+ type issues, such as services, capital accessions or negotiations between existing PTAs.
flows, standards, intellectual property, regulatory Examples include successive EU enlargements, the
systems (many of which are non-discriminatory) and consolidation of bilateral pacts between Eastern
commitments on labour and environment issues. European countries in the context of the Central
European Free Trade Agreement (CEFTA) and the
The Uruguay Round (1986-1994) coincided with a conclusion of a PTA between Mercosur and the
period of growing regionalism and several issues, Andean Community in the Latin American Integration
including services and intellectual property, were Association (LAIA) framework.
addressed for the first time both regionally and
multilaterally. The continuing proliferation of PTAs in At the same time, a parallel trend is discernible towards
parallel with the Doha Round has provoked a debate bilateral deals across regions. While many of these
about coherence, compatibility and potential conflict bilateral arrangements are between developing
between multilateral and regional approaches to trade countries, developed countries have also played a part.
cooperation. Among the questions addressed in this A consequence of this trend is an increased
debate are whether burgeoning regionalism signals a fragmentation of trade relations, with countries
weakening of international commitment to open trade, belonging to multiple, sometimes overlapping PTAs.
and foreshadows a return to a more fragmented
trading system. Alternatively, PTAs may be part of a Free trade agreements are far more prevalent
broad pattern seen since the Second World War – than customs unions and a number of products
where some countries want to move “further and continue to be excluded from preferential access.
faster” in trade rule-making than others, where
bilateral and regional agreements can have a positive, Free trade agreements account for more than three-
“domino effect”, encouraging the pace of multilateral quarters of all PTAs in force. Although GATT
cooperation (and vice versa), and where regional and Article XXIV requires that import duties are to be
multilateral agreements are becoming coherent, not eliminated on substantially all trade among the
conflicting, approaches to managing a more complex members of customs unions and free trade areas,
and integrated world trading order. some products are often excluded. A recent study of
PTAs involving four major trading countries and their
stylized facts about PtAs partners shows that about 7 per cent of tariff lines in
the sample are excluded, either temporarily or
PtA participation has accelerated over time and permanently. These products are mainly agricultural or
become more widespread. food items, and labour-intensive manufactured
products such as footwear and textiles.
From the 1950s onwards, the number of active PTAs
increased more or less continuously to about 70 in the coverage of PtAs in terms of policy areas has
1990. Thereafter, PTA activity accelerated noticeably. widened and deepened over time.
The number of PTAs in force in 2010 was close to
300. The surge in PTA activity is driven both by a Notwithstanding the prevailing pattern of specific
growing number of countries taking an interest in product exclusions from tariff elimination, most recent
6

9. exeCutIve summARy
PTAs go beyond traditional tariff-cutting exercises and type of goods being traded. The share of intra-regional
may include such policy areas as services trade, trade in world exports of manufactured goods was
investment, intellectual property, technical barriers to quite stable between 1990 and 2009, fluctuating
trade and dispute settlement. For instance, about one- between 56 and 59 per cent, but the share for office
third of PTAs in force today contain services and telecom equipment jumped from 41 per cent to
commitments compared to less than a tenth in 1990. 58 per cent. Taken together, these results suggest
that supply chains may be an important component of
stylized facts about trade flows related recent PTA activity in Asia and in the electronics
sector, but not so much in other regions or economic
to PtAs
sectors.
the value of world trade between members of
preferential trade agreements has increased as How preferential is trade?
the number of PtAs has expanded.
trade among PtA members is not all preferential
Intra-PTA trade represented about 35 per cent of total on account of the fact that a significant portion of
world merchandise trade in 2008, compared with 18 intra-PtA trade is mFn duty-free.
per cent in 1990.1 Preferential trade – that is, trade
actually receiving preferential tariff treatment – In a sample covering imports of the 20 largest
represents a much smaller share of world trade. importers from all their trading partner countries –
However, it is still worth considering total trade among accounting for 90 per cent of world merchandise trade
PTA members because the latest generation of trade in 2008 – only 16 per cent qualified as preferential
agreements may be motivated by a broader set of trade, assuming full utilization of preferences. 2 In other
considerations than just tariff reductions, including the words, despite the explosion of PTAs in recent years,
development and maintenance of supply chains. 84 per cent of world merchandise trade still takes
place on a non-discriminatory most-favoured nation
The share of manufactured goods in total intra-PTA (MFN) basis. This is firstly because half of world trade
exports is the same as the share of manufactured is already subject to zero MFN tariff rates. Secondly,
goods in world trade (65 per cent), and this share does PTAs tend to exempt high MFN-tariff items from
not vary much across PTAs. However, intra-PTA trade preferential treatment and continue to trade these
in parts and components does vary significantly across products at MFN rates.
trade agreements, suggesting a link between some
PTAs and vertically integrated production structures. Existing preferential tariffs reduce the global trade-
weighted average tariff by one percentage point, and
Plurilateral trade agreements accounted for half of 90 per cent of this reduction (i.e. 0.9 percentage
global intra-PTA trade in 2008, while bilateral trade points) is due to reciprocal preference regimes. Only
agreements (including those where one party is a PTA) 2 per cent of global imports are eligible for preferential
accounted for the other half. tariffs where preference margins are 10 per cent or
more. For most large exporters, preferential tariffs
If many recent PtAs were designed to support matter little for the bulk of their exports. This is not
production networks, we might expect to see always true for individual sectors especially in certain
greater geographic concentration of trade over smaller economies exporting a narrow set of
time, since many production networks are commodities (mainly sugar, rice, bananas, fish and
regional in nature. evidence of this exists only for garments), where preference margins may be more
certain regions. substantial. There is a possibility though that these
preferences will be eroded over time as the countries
The share of intra-regional trade in Europe's total to which they export enter into more PTAs.
exports remained roughly constant at around 73 per
cent from 1990 to 2009. Asia's intra-regional trade Data from some customs administrations suggest
share increased from 42 per cent to 52 per cent of a high rate of preference utilization.
total exports during the same period. North America’s
intra-regional trade share rose from 41 per cent in Information on the value of imports under different
1990 to 56 per cent in 2000, but then fell back to preferential regimes from the EU and US reveal
48 per cent in 2009, so there appears to be no global preference utilization rates of 87 and 92 per cent
pattern that applies to all industrialized regions. respectively. Preference utilization rates are uniformly
Developing regions that predominantly export natural high for most exporting countries, preferential regimes
resources have seen the share of intra-regional trade and types of products. Analysis shows that both
in their total exports shares rise substantially over the preference margins and import values have a positive
past 20 years or so, but they remain quite small. and statistically significant impact on preference
utilization. Surprisingly, however, many individual items
The extent to which trade has become more facing tariffs below 1 per cent still exhibit high
geographically concentrated differs depending on the utilization rates. This might suggest either that the
7

10. WOrld Trade repOrT 2011
cost of using preferential tariffs in certain cases is Section C: Causes and effects of
negligible or that other benefits are linked to using
these preferences, perhaps related to privileged pTas: is it all about preferences?
customs clearance, qualification under specific
security measures or advantages in case of re-export motives for PtAs
to other PTA partners.
economic and political science theories provide
Data from firm surveys offer a more detailed and various explanations for why countries establish
mixed picture of preference utilization rates. preferential trade agreements.
Firm surveys carried out in 2007-08 by the Asian Unilateral trade policy choices can have “beggar-thy-
Development Bank (ADB) and the Inter-American neighbour” consequences, such as unfavourably
Development Bank (IDB) in six East Asian countries affecting the ratio of import to export prices (terms-of-
and four Latin American countries respectively reveal trade effect) or a production relocation effect. Countries
that the use of PTA preferential tariffs is not uniformly might be stuck in a situation characterized by high
high. For instance, the ADB survey shows that only restrictions and inefficiently low levels of trade. A trade
around one-quarter of firms in the sample currently agreement could neutralize these beggar-thy-neighbour
used these preferences. However, this number doubled effects and achieve higher welfare. Economic theory
when plans for using PTA preferences in the future suggests, however, that a multilateral agreement rather
were factored in. The IDB survey shows that only than a PTA is the best way to address the problem.
20 per cent of the firms in the sample did not make
any use of PTA preferences. Gains in credibility suggest a second reason for
signing a PTA. A government may choose to “tie its
Complications and costs involved in complying with hands” through an international agreement in order to
rules of origin were cited as considerations influencing prevent future policy reversals that would be
preference utilization, especially where preference convenient in the short-run, but inefficient in the long
margins were low. The surveys also cited other firm- term. A PTA may provide a stronger commitment than
specific factors that influenced preference utilization. a multilateral agreement when a country is small in
For instance, larger, more experienced firms, with world markets.
higher foreign equity and more information about PTA
provisions, were more likely to use preferential tariffs. "Non-traditional” reasons for why countries form PTAs
Firms in a number of countries suggested that a lack include accessing a larger market, ensuring against
of information on PTAs was the major explanation for preference erosion, increasing predictability of future
the non-use of these preferences. trade policy, signalling stability to investors, and
achieving deeper policy commitments.
See page 46
The creation of PTAs cannot be understood without
taking account of political circumstances. Political
science explanations of PTA formation focus on the
role of political integration, the role of domestic
political considerations, the form of governments and
institutions, diplomacy, and the role of power relations.
Changes in trade relationships may explain the
growth of PtAs over time. together with certain
country characteristics, they may also explain the
timing of PtA formation and enlargement.
The potential loss of market share for non-members of
an existing PTA induces them to form new PTAs or join
existing ones. These domino effects of PTA formation
can be further strengthened with multilateral trade
opening.
Among the factors accounting for the pattern of PTA
formation and enlargement over time are the physical
distance between countries, economic size, similarity
in economic size, proximity of a potential entrant to an
existing PTA, the extent of existing agreements facing
a country pair, and the existing number of members in
a PTA.
8

11. exeCutIve summARy
the standard economics of PtAs whether a PtA reduces or increases the incentive
to set inefficiently high external tariffs.
the standard theory on the effects of PtAs
suggests that preferential trade agreements In shaping their PTAs, governments may not be
increase trade between member countries and influenced exclusively by the welfare implications of
reduce trade with third-countries, leading to agreements. If organized lobby groups carry sufficient
negative welfare effects for non-members of weight in the political preferences of governments,
PtAs. trade-diverting PTAs could be politically viable in some
circumstances.
A PTA increases trade among members as exporters
benefit from the elimination of tariffs in partner Moreover, conflicting political economy forces may act
markets. Non-member countries suffer from a upon external tariffs agreed in a PTA. On the one
reduction of exports to member countries and a hand, PTAs destroy protectionist benefits and lower
decline in the price of their exports in international the demand for high external tariffs. On the other
markets. hand, high external tariffs can be used in PTAs to
sustain cooperation on non-trade issues. The empirical
In the traditional Vinerian analysis, preferential trade literature finds evidence of both effects.
opening allows some domestic production to be
replaced by imports from more efficient firms located Restrictive rules of origin (Roos) in PtAs may
in preference-receiving countries, leading to welfare divert or suppress trade in intermediate goods.
gains (trade creation). At the same time PTAs may
reduce imports from more efficient non-member Restrictive RoOs may make it profitable for firms in a
countries, implying a welfare loss (trade diversion). The country to engage in “supply switching” – replacing an
net welfare effect of PTAs depends on the relative efficient non-member supplier of an intermediate good
magnitude of these opposing effects. with a less efficient one, either from a partner country
(trade diversion) or a domestic firm (trade contraction
supply chain or vertical production arrangements or suppression). Furthermore, by influencing the
may change the welfare calculus. sourcing of intermediate goods, RoOs are likely to
increase firms' costs and hence have an adverse effect
The possibility of trading components used in the on final goods trade.
production of final goods alters the calculation of trade
creation and trade diversion. Although the outcome is This discrimination, which leads to trade diversion by
still uncertain, welfare-reducing PTAs trading only in protecting the exports of certain industries in PTA
final goods could become welfare-improving once member countries, can be resolved through the
members trade in parts and components along a “diagonal cumulation” of RoOs. Under this
supply chain. In this way, international production arrangement, participating countries agree that in all
networks can mitigate the trade diversion effects of PTAs concluded among themselves, materials
PTAs, although this is by no means guaranteed. originating in one country can be considered to be
materials originating in any of the other countries.
the trade effects of a preferential agreement
depend on the economic characteristics of PtA Going beyond the standard analysis
members.
the concept of deep integration is widely used to
The “natural trading partners” hypothesis suggests refer to any arrangement that goes beyond a
that trade agreements among countries which trade simple free trade area.
intensively are more likely to be trade-creating.
Preferential trade agreements may also have dynamic Trade agreements that mostly deal with border
effects, for instance driven by economies of scale, and measures are often defined as “shallow” agreements.
effects on the location of production. In contrast, preferential agreements that include rules
on other domestic policies are referred to as “deep”
Several studies have tested the traditional theories on agreements.
trade creation and trade diversion. While this literature
is not conclusive, it suggests that trade diversion may Two distinct dimensions of deep integration are the
play a role in some agreements and in some sectors, “extensive” and the “intensive” margin. The extensive
but it does not emerge as a key effect of preferential margin refers to an increase in the policy areas
agreements. covered by an agreement, while the intensive margin
refers to the institutional depth of the agreement. The
When governments have political economy extensive and intensive dimensions of deep
reasons for signing a PtA, the question arises agreements may be related, as an extension of the
whether trade-diverting or trade-creating coverage of an agreement may require the creation of
agreements are more politically viable and common institutions for its proper functioning.
9

12. WOrld Trade repOrT 2011
Deep integration and trade are intimately related. Deep integration may involve several trade-offs
that need to be addressed.
Deep arrangements may be necessary to promote
trade in certain sectors and economic integration more A basic trade-off arises between the benefits of
broadly. For instance, harmonization or mutual common policies and the costs of harmonization when
recognition of certain regulations may be a pre- policy preferences differ among member countries.
requisite for trade in services, or competition policy
rules may be required to allow comparative advantage Deep integration lowers trade costs and provides
to materialize. shared benefits, such as common rules and a stable
monetary system, that the market or national
Economic theory also suggests that the degree of governments fail to offer. However, no unifying analysis
trade openness is a determinant of deep agreements. is possible of the economic effects of deep integration,
In this respect, shallow and deep integration may be as these effects depend on the specific form that
seen as complementary where the first generates a arrangements take.
demand for governance that the second can provide.
Deep integration with advanced economies may create
An institutional challenge for the WTO is to find an advantages for developing countries from importing
approach that facilitates deeper integration sought by best-practice institutions. However, costs may be
its members while maintaining compatibility with the involved if the common rules are distant from national
non-discrimination principle. preferences and the needs of developing countries.
the rise in international production networks Deep integration also has systemic effects. Deep
illustrates the complementarity between trade agreements may impose costs on non-member
and governance which is at the core of successful countries. On the other hand, deep regional integration
deep agreements. could provide an appropriate intermediate level of
integration (e.g. common rules) between nation states
In order for cross-border production networks to and the global level in different behind-the-border
operate smoothly, certain national policies need to be areas.
harmonized or rendered mutually compatible to
facilitate business activities in several countries. This See page 92
generates a demand for deep forms of integration.
Developed countries were the first movers in the
attempt to provide some international rules to further
encourage international fragmentation of production.
Agreements such as the EU Single Market Programme
or the US-Canada free trade area can be explained (at
least in part) in terms of increased demand for deep
integration generated by the needs of international
production sharing arrangements.
The continuous expansion of production sharing
between developed and developing countries requires
deeper agreements to fill the governance gap between
countries. An agreement such as the North American
Free Trade Agreement, for example, includes
disciplines going beyond preferential tariffs that are
required to facilitate production sharing between the
United States and Mexico. In Europe the Euro-
Mediterranean agreements fulfil the same objective.
The recent wave of preferential agreements may (at
least in part) be an institutional response to new
circumstances created by the growth in offshoring. In
this sense, PTAs are efficiency-enhancing rather than
beggar-thy-neighbour (trade-diverting) agreements.
10

13. exeCutIve summARy
Section d: anatomy of overall, services commitments in PtAs have gone
well beyond commitments in the General
preferential trade agreements Agreement on trade in services (GAts) as well as
Doha Round offers in services.
Preferential tariffs and PtAs
Services obligations typically form part of
Preference margins are small and market access comprehensive PTAs covering “new generation” issues
is unlikely in many cases to be an important such as investment, intellectual property, or
reason for creating new PtAs. e-commerce. Out of 85 notifications under Article V of
the GATS, 3 a little more than a third rely on a GATS-
The estimated average applied tariff across all type listing of areas where specific commitments apply
products and countries was 4 per cent in 2009, and (positive list), almost half rely on the more
the scope for exchanging preferential market access is comprehensive approach of indicating where specific
therefore limited. Significant tariff barriers still exist in commitments do not apply (negative list) and the
some sectors, however, such as agriculture and labour- remainder adopt a mixture of the two approaches.
intensive manufactured goods. However, PTAs do not
appear to be about the removal of tariff peaks either. Despite innovations in their structure, most services
Most sensitive sectors remain sensitive (subject to PTAs share a broad commonality with the GATS in
higher tariffs) in PTAs. Approximately 66 per cent of terms of the basic set of disciplines, although some
tariff lines with MFN rates above 15 percentage points PTAs have gone beyond GATS with respect to
have not been reduced in PTAs. disciplines on domestic regulation or transparency, for
example.
When the advantage conferred by providing preferential
access to an exporter is calculated with respect to the the investment chapters in PtAs contain many
average applied tariff faced by all exporters to the same provisions and guarantees that are important to
market rather than relative to the MFN rate, the share of international production networks.
global trade for which preferential market access
matters is less than 13 per cent. Since firm-specific assets such as human capital
(management or technical experts) and intellectual
Patterns in the content of PtAs property (patents, blueprints) give international firms a
competitive edge, protecting these assets against
PtAs cover many more policy areas than tariffs expropriation will encourage more production sharing.
and frequently entail legally enforceable Allowing freer movement of corporate personnel is
commitments. another critical requirement. Investor confidence will
be further improved through access to a dispute
In a sample of almost 100 PTAs, deep integration settlement mechanism.
elements were classified into WTO+ areas and WTO-X
areas. WTO+ refers to deeper integration in areas From the sample of investment chapters in PTAs used
covered by the WTO and WTO-X refers to policy areas for this report, it appears that a large proportion of
not covered in WTO agreements. The analysis confirms agreements have adopted a negative list and hence a
that many PTAs go beyond the WTO and these deep more ambitious approach to investment opening. They
integration provisions are frequently enforceable legally. typically extend MFN and national treatment to foreign
investors, provide guarantees of investor protection
As expected, WTO+ provisions universally include and grant private investors the right to dispute
industrial and agricultural tariffs. An increasingly large settlement. In general, the investment provisions in
number of PTAs now also include provisions on technical these PTAs are accommodating, although no attempt
barriers to trade, services, intellectual property and has been made to test how much these provisions
trade-related investment measures. WTO-X provisions actually affect flows of foreign direct investment. More
commonly include competition policy, investment and recent PTAs appear more open on the investment
the movement of capital. About one-third of the PTAs in front than earlier ones.
the sample also include environmental laws, labour
market regulations and measures on visa and asylum. As tariff barriers have progressively been
reduced, non-tariff barriers have acquired
Compared with PTAs between trading partners with increasing weight. over time, more and more
similar levels of income, those between developed and PtAs have included provisions regarding
developing countries contain a higher number of technical barriers to trade (tBts).
WTO+ provisions on average. WTO-X provisions are
encountered most frequently in agreements between The inclusion of specific provisions in PTAs appears to
developed countries, followed by those between follow a hub and spoke structure, with a larger partner
developed and developing countries, and finally those representing the hub to whose standards the spokes
between developing countries. will conform. For example, while the agreements
11

14. WOrld Trade repOrT 2011
signed by the EU typically include harmonization competition authority in one PTA member takes action
provisions, North American agreements that embody against anti-competitive behaviour.
TBT provisions tend to prefer mutual recognition. In
addition, North American, East Asian and South- Production networks and deep PtAs
Central American TBT provisions in PTAs mainly focus
on introducing transparency requirements and empirical analysis confirms the positive
developing institutional bodies, while EU and African association between deep integration and
agreements barely consider these issues. production networks.
the risk of a lock-in effect exists in regional Lack of data poses some difficulties in assessing the
provisions on tBts. international fragmentation of production, forcing
empirical studies to rely on proxy measures for
Harmonization to a regional standard may increase the production networks. This analysis uses trade in parts
costs for further multilateral liberalization. If adopting a and components to proxy for global production sharing.
certain standard involves the payment of some form of
fixed costs, the risk exists that regional provisions may Results show that greater trade in parts and
work as a stumbling block in multilateral cooperation. components increases the depth of newly signed
agreements among PTA members. PTAs also increase
Competition policy complements the reduction of trade in parts and components by 35 per cent among
trade barriers. members. In addition, the greater the depth of an
agreement, the bigger the increase in trade in parts
The adoption of competition policy in PTAs is in many and components among member countries. The
ways a natural complement to the reduction of trade, estimation results show that on average, signing deep
investment and services barriers. In evaluating agreements increases trade in production networks
competition rules in PTAs, one needs to go beyond the between member countries by almost 8 percentage
competition policy chapter of PTAs to include points.
competition-related provisions that appear in other
chapters of trade agreements. Competition disciplines the case of AseAn: from regionalization to
appear in the chapters on investment, services (in regionalism.
telecommunications, maritime transport and financial
services), government procurement and intellectual ASEAN was established in 1967 largely to deal with
property. rising territorial tensions among some of its members
(the original signatories were Indonesia, Malaysia,
Sector-specific competition provisions may have Philippines, Singapore and Thailand) and with possible
stronger pro-competitive effects than the articles in spillovers from the conflict in Indochina. In the quarter
the competition policy chapter itself, assuming that the of a century that spanned the creation of the
trade agreement has one. Principles in PTAs relating association and the decision formally to establish the
to non-discrimination, procedural fairness and ASEAN free trade area (AFTA), there was a shift in
transparency can also have a strong bearing on economic policy from traditional import substitution to
competition law and policy. export promotion and openness to foreign direct
investment.
many elements of competition rules in PtAs are
characterized by non-discrimination. This led to a huge increase in total merchandise
exports of the five original members. In particular,
Competition disciplines usually operate through the exports of parts and components became increasingly
use of domestic regulations. While it is not impossible important, rising from just about 2 per cent of total
for these regulations to be tailored to favour exports in the year of the association's founding to
enterprises originating from PTA partners, it may be 17 per cent by the time the free trade agreement was
costly to do so. To the extent that enforcement of signed. Equally telling was the increased prominence
competition law reduces the market power of domestic of parts and components trade in intra-regional trade.
incumbents, the prospects of foreign enterprises that
already operate in the market are improved, whether or While the increased regionalization of trade in parts
not they are from a PTA member. and components trade in ASEAN would not have been
possible without the countries' openness to trade and
Competition provisions in regional agreements may foreign investment, it may not have been sufficient for
carry other external benefits, such as economies of production networks to continue to flourish. This may
scale from the creation of a regional competition explain AFTA's evolution beyond a free trade area.
authority. Even if no centralized authority is Services and intellectual property agreements were
established, benefits can flow from information sharing signed in 1995, an investment agreement and dispute
and cooperation among enforcement authorities. settlement mechanism in 1996, and a framework
Demonstration effects may also apply when a agreement for mutual recognition arrangements in
12

15. exeCutIve summARy
1998. Recent studies document how AFTA succeeded economic diversification. Enhanced market access
in reducing trade costs, not through preferential tariff without the capacity to produce goods and services to
liberalization but through concerted trade facilitation benefit from those opportunities will fail to produce
initiatives, and how this was motivated by participation higher economic growth. At a regional level these
in international production networks. supply-side constraints could be addressed in part by
a regional integration agenda that includes services,
Production networks may explain some PtAs in investment, competition policy and other behind-the-
Latin America too: the case of Costa Rica. border issues. In short, a deep integration agenda
could address supply-side constraints more effectively
As a result of its policies of trade and investment than an agenda that focuses almost exclusively on
opening, Costa Rica has experienced a significant border measures.
change in its trade structure, with a substantial rise in
the share of manufacturing exports as well as trade in See page 122
services in total exports. Over the last decade, the
country has become more integrated with global
production networks in such sectors as electronics,
medical devices, automotive, aeronautic/aerospace,
and film/broadcasting devices.
The link between production networks and PTAs
seems apparent in Costa Rica's agreements with the
United States (US-CAFTA-DR agreement) and with
China. While overall trade with the United States grew
by about 11 per cent annually from 1995, parts and
components trade grew at about twice that rate. More
than 25 per cent of Costa Rica's total goods exports in
2009 were directly related to production networks in
electronics, with China being the main trading partner.
Overall, trade in parts and components makes up
about half of Costa Rica's current trade with China.
not all integration experiences conform to this
pattern: the case of Africa.
The roots of African integration lay in the effort to
correct the geographical fragmentation bequeathed by
colonialism. Fragmentation resulted in small markets,
land-locked economies, and limited development
options. In the 1980s, the Lagos Plan of Action
proposed the division of the continent into regional
integration areas that would eventually constitute a
united African economy.
For the most part, African integration has focused on
import tariffs. The inclusion of services and other
behind-the-border issues, such as investment,
competition policy and government procurement, has
proved contentious. A major limitation to African
integration progress has been its adherence to a
“linear” integration model. This process is marked by
the stepwise integration of goods, labour and capital
markets, and eventually monetary and fiscal
integration.
Deep integration could improve Africa's record on
regional cooperation.
Border measures are likely to represent a minor
constraint to regional trade in Africa compared with
structural economic shortcomings, such as a lack of
infrastructure, an institutional framework, skills, and
13

16. WOrld Trade repOrT 2011
Section e: The multilateral directly refer to WTO rules on deep integration
measures, automatically supporting the multilateral
trading system and pTas trading system.
systemic effects of preferential tariff Several mechanisms supporting further trade opening
liberalization are found in PTAs. These include “non-party” MFN
clauses, a tendency to use template approaches that
A number of different mechanisms have been replicate trade rules, and domino effects pointing in
identified through which PtAs could foster or the direction of the progressive extension of
hinder multilateral trade opening. preferential market access.
The prospect of preference erosion can be a force for Production chains can alter political-economy
supporting further multilateral tariff reduction or for forces in favour of the adoption of trade measures
resisting it. The presence of political-economy that comply with the principle of non-
motivations behind tariff reductions is another factor discrimination.
that can either foster or slow down the diminution of
preferential tariffs through trade-opening on an MFN Final good producers sourcing their imports through
basis. international value chains are likely to support the
harmonization of rules of origin across PTAs, for
Opposition to further multilateral tariff reductions instance through the adoption of rules of cumulation.
might also arise in the case of PTAs that are concluded
to foster mutual cooperation on non-trade issues, or The international fragmentation of production may
when PTAs increase the adjustment costs associated also be a driver of deep integration provisions that are
with multilateral opening, or when the PTA is trade- consistent with the principles of the multilateral trading
creating from the perspective of excluded countries. system, such as international standards and
multilateral rules on trade remedies.
evidence on the systemic effects of regionalism
on multilateral tariff reductions is inconclusive. some deep provisions in PtAs can, however,
contain discriminatory aspects, creating a tension
The literature that considers whether MFN and with the multilateral trading system.
preferential tariffs complement or compete with each
other finds opposite results for developing and The risk of trade diversion may extend beyond tariffs,
developed countries. Most of the contributions to this for example to the area of anti-dumping. Anti-dumping
literature, however, do not distinguish between MFN provisions in PTAs may result in members being spared
tariffs that have been negotiated at the multilateral from anti-dumping actions and an increased frequency
level and unilateral tariff reductions. of anti-dumping actions against non-members.
Moreover, many PTAs exclude the imports of PTA
Examination of the correlation between PTA formation partners from global safeguard actions.
and multilateralism cannot produce conclusive results
because multilateral trade rounds are rare events, Lock-in effects of regulatory harmonization within
where more or less ambitious trade opening scenarios a given PtA may have negative systemic effects.
are negotiated. Multilateral trade negotiations are not
structured to contemplate either full or zero trade Competing PTAs with incompatible regulatory
opening. Anecdotal evidence can be found to support structures and standards may lock in members to a
the view that PTAs facilitate further multilateral trade particular regime, undermining the principles of
opening and the opposite view that they hinder it. transparency and predictability of regulatory regimes
and making movement towards multilateral trade
opening costly.
Deep PtA provisions and the multilateral
trading system the non-discriminatory nature of deep provisions
might in principle create political-economy and
so far not much research has been conducted on third-country resistance to further multilateral
the systemic effects of deep-integration opening.
provisions. the existing literature suggests that
deep integration is often non-discriminatory. If preferential liberalization is non-discriminatory in
nature, it might be opposed by political-economy
By their very nature, some deep integration provisions forces because higher market shares (and profits) in
are de facto extended to non-members because they the other member’s market might be more than offset
are embedded in broader regulatory frameworks that by the loss of domestic profits vis-à-vis firms from
apply to all trading partners. In such cases, multilateral partners and non-members.
regulation may not be necessary. PTAs may also
14

17. exeCutIve summARy
Concerns over overlapping jurisdiction between involving such measures do not typically induce trade
the Wto dispute settlement system and the diversion, their systemic implications cannot be
dispute settlement mechanisms of PtAs have analysed using the traditional stumbling blocks/
received considerable attention in the academic building blocks framework. Moreover, the political
literature. economy of new PTAs is different from that of
preferential tariffs.
The possibility that dispute settlement procedures in
more than one forum can give rise to conflicting new international trade rules are being developed
judgements has been discussed as a potential source outside the Wto, with attendant risks of exclusion
of concern. The issue has been raised only in a handful and additional trade costs arising from
of WTO disputes. A review of the disputes brought to overlapping and possibly competing regulatory
the WTO reveals that members continue to use the structures.
WTO dispute settlement system to resolve
disagreements with their PTA partners. Whether and how these new challenges might be
addressed is an open question. The principle of
seeking coherence between PtAs and subsidiarity, which states that regulatory regimes
should be as decentralized as possible, could be used
the Wto
to assess whether measures agreed at the bilateral or
regional level need to be incorporated in a multilateral
GAtt/Wto provisions provide exemptions under
setting.
certain circumstances from the mFn principle for
PtAs.
A number of different approaches have been
proposed for improving coherence between PtAs
Surveys of the application of these provisions suggest
and the multilateral trading system.
a relatively tolerant attitude towards PTAs. The
provisions themselves are widely regarded as
There may be a case for maintaining separate regimes
incomplete and lacking in clarity. Recently, attention
for regional and multilateral cooperation where
has focused on improving transparency and the Doha
particular types of cooperation are more appropriately
Round negotiations have resulted in the introduction
managed at the regional rather than the multilateral
on a provisional basis of a new transparency
level. By the same token, there are issues that cannot
mechanism.
be addressed adequately at the regional level. In
between these two extremes, the coherence question
The fact that the Transparency Mechanism for
arises.
Regional Trade Agreements is the only result of the
Doha negotiations that has been allowed so far to go
Proposals can be grouped under four headings:
forward independently of the full results of the Round
accelerating multilateral trade opening; fixing the
suggests that WTO members are aware of the need to
deficiencies in the WTO legal framework; adopting a
better understand what regional trade agreements are
softer approach as a complement to the existing legal
about.
framework; multilateralizing regionalism (extending
existing preferential arrangements in a non-
the quest for coherence between regionalism
discriminatory manner to additional parties). These
and multilateralism is nothing new.
approaches are not mutually exclusive. They all aim at
making sure that PTAs contribute to trade cooperation
Until recently, ensuring coherence was broadly
and opening in a non-discriminatory manner.
understood as accepting that PTAs and the multilateral
system could complement each other while imposing
Lowering MFN tariffs would reduce discrimination and
disciplines aimed at minimizing the negative effects
thereby blunt the adverse effects of PTAs. However,
that PTAs could have. Approaches to improving
reducing all tariffs to zero does not seem to be
coherence focused on the weaknesses of multilateral
politically feasible in the present context and it would
disciplines and how they could be fixed.
not eliminate all potentially adverse effects of deeper
integration measures. Moreover, the scope for far-
Recent developments in PTA activity may well change
reaching action in this domain is limited by the low
the perspective on coherence. Beyond the fact that
average level of existing preferential tariffs.
PTA activity has accelerated noticeably since 1990,
what may challenge the current thinking is that the
The Doha Round includes a mandate to negotiate with
new PTAs, or at least some of them, are qualitatively
a view to “clarifying and improving disciplines and
different from the old ones.
procedures under the existing WTO provisions
applying to regional trade agreements”. While
Some of the new PTAs focus more on reducing
negotiations on the procedural issues have resulted in
behind-the-border barriers than on extending
the adoption on a provisional basis of the new
preferential tariffs. Given that preferential agreements
transparency mechanism for regional trade
15

18. WOrld Trade repOrT 2011
agreements, negotiations on rules have not advanced. Conclusions
These difficulties conform to a long-standing pattern
of limited progress.
An over-arching conclusion of this report is that
regional and multilateral approaches to trade
The rationale for using a “soft law” approach would be
cooperation need not be incompatible, but neither can
to allow WTO members to better understand their
they be seen simply as arrangements that serve the
respective priorities and interests, with a view
same purpose or satisfy the same needs. Support for
eventually to unblocking progress towards legal
an increasingly outward-looking and inclusive global
interpretations of particular provisions that would
trading order has been strong in the period since the
ensure coherence. However, the soft law approach is
end of the Second World War, and this growing trend
not without risk as soft law and hard law could become
towards openness has manifested itself through
antagonistic to one another if the underlying conditions
unilateral, bilateral, regional and multilateral
for cooperation are absent.
approaches.
As a result of global production sharing, new forces
The spread of deep PTAs and the weightier role of
favourable to the multilateralization of regionalism may
non-tariff commitments have important implications
have emerged. The extent to which deep integration
for how to evaluate the role of PTAs and how they
measures in PTAs have the potential to generate the
interact with the multilateral trading system. The sheer
same sort of costly spaghetti/noodle bowl as
number of PTAs and continuing momentum towards
preferential tariffs is still a matter for debate, but there
establishing more of them suggest that they are here
may be a role for the WTO to reduce these transaction
to stay. They respond to a range of economic and
costs.
political needs. Governments will need to find a
coherent way of fashioning trade policy at the regional
See page 164
and multilateral level. This means ensuring that PTAs
and the multilateral system complement each other
and that multilateral disciplines minimize any negative
effects from PTAs.
See page 196
16

19. exeCutIve summARy
Endnotes
1 These figures have been calculated excluding intra-EU trade.
2 If intra-EU trade is included, 30 per cent of world trade is
preferential.
3 This figure is current as of 1 March 2011, counting
notifications for agreements that are currently in force.
17

20. I. World trade in 2010
Global trade flows rebounded strongly in 2010
following their collapse in 2009. The rise in the
volume of goods exports in 2010 was the
largest on record, enabling world trade to
return to its pre-crisis level but not its long-
term trend. Economic conditions continued to
improve in both developed and developing
economies, but the recovery of both trade and
output proceeded more slowly in developed
countries.

21. Contents
A. Introduction 20
B. the state of the world economy and trade in 2010 22
Appendix tables and charts 31